Silver prices continued to fall on the Multi Commodity Exchange (MCX) on Monday, February 2, which is part of the sharp decline that has been going on for the last two days. Silver is now down more than 40% from its record high of Rs 4,20,000 made on Thursday (January 30). That means around Rs 1.71 lakh has been lost. The reason for this fall is the strengthening of the dollar and the implementation of increased margin requirements by the CME exchange from today. The price of silver on MCX fell by 6% to the day’s low of Rs 2,49713 per kg. However, global markets saw a recovery, with spot silver rising more than 8% to $84.140 an ounce, after falling nearly 12% in early hours of Asian trading.
Gold also falls on MCX
Gold prices also declined on MCX in Monday’s session, extending losses after their steepest one-day fall in more than a decade. MCX gold fell 1.5% to the day’s low of Rs 1,40,000 per ten grams. That means it has become cheaper by about Rs 40,000 from the all-time high. But, in international markets, spot gold rose 1% after falling 4% during Asian trade.
The journey of boom and bust in precious metals
Over the past year, precious metals had reached unprecedented highs that surprised even experienced traders. The rally intensified in January as investors flocked to gold and silver amid geopolitical instability, weakening currencies and questions over the independence of the Federal Reserve. Additional speculation from China further fueled this rally.
immediate causes of decline
The immediate cause of Friday’s sharp decline was the announcement that US President Donald Trump plans to nominate Kevin Wersh to be the next Federal Reserve chairman. The development strengthened the US dollar and dampened the morale of traders who were expecting a weaker currency under Trump. Warsh is generally considered a strong anti-inflationary (hawk), leading to expectations of negative, tight monetary policy, in support of the dollar and for dollar-priced bullion.
margin on futures
The further pressure comes from CME Group’s decision to raise margin requirements on COMEX gold and silver futures following the largest price swings seen in decades. This has come into effect from today, February 2. According to the exchange, margin requirements for gold futures for non-high risk accounts will be increased to 8% of the contract value from the existing 6%. For high risk profiles, the margin will increase from 6.6% to 8.8%. For silver futures, the margin for non-high risk profiles will be increased from 11% to 15%, while for high risk accounts, this requirement will be increased from 12.1% to 16.5%. Margin requirements for platinum and palladium futures are also set to be increased.
What to do for investors?
Jatin Trivedi, VP Research Analyst – Commodity & Currency, LKP Securities, said that going forward, silver is likely to remain highly volatile, with more volatility and scope for volatility than gold. In the current environment, it is advisable to adopt a cautious approach, and investors would be better off observing the price action until the volatility subsides and there is clear stability. “For investors, this is not the moment to panic,” said Akshat Garg, Head Research & Product, Choice Wealth. Gold and silver are portfolio hedges, not trading bets. If the asset allocation is reasonable, it makes sense to stick to it. If anything, chase bullishness. “Buying in a phased manner during a downturn works better. Volatility hurts sentiments, not long-term planning.”
